Question re: Blackout Periods 1715

  • Can executives use their equity to pay taxes during blackout periods?

  • Hi,
    I am not sure how your question relates to SOX compliance. It would be great if you can rephrase it with more information.
    Regardless of whether the question is of direct SOX relevance, providing more information in the question for the Forums will help others on this site to reply if someone has feedback that he/she can share with you.

  • Well, Section 306 addresses the prohibition of insider trading during pension fund blackout periods, stating that an executive cannot sell any of his or her equity that was acquired in connection with his or her employment during a blackout period (any period of more than 3 consecutive business days during which the ability of not fewer than 50 percent of the participants or beneficiaries under all individual account plans maintained by the issuer to purchase, sell, or otherwise acquire or transfer an interest in any equity of such issuer held in such an individual account plan is temporarily suspended by the issuer or by a fiduciary of the plan).
    I was wondering if, during these blackout period, an executive could sell equity for the purpose of paying taxes.

  • Hi,
    Thanks for the excellent clarification and follow-up. I am not an attorney and possibly, someone with SEC reporting experience can provide a well-researched answer to your question.
    From a conceptual standpoint, I believe that that prohibited insider trading activity would not be allowed regardless of the purpose of the transaction.
    Although the IRS might receive a more complete payment on personal income or back taxes owed if an insider sells common stock that he/she owns in his/her company at a time when the price is high, it would also be logical to conclude that SOX Section 306 and/or applicable SEC rules prohibits ALL insider trading activities during the blackout period.
    The fact that the SOX Act did not identify exceptions seems to indicate that the requirement was intended for application without exception.
    If others have insight/feeback to share, that would also be helpful.

  • Thanks for your prompt reply. I agree that SOX seems not to allow for any exceptions, but a colleague asked me to try to track down an answer about this specific scenario anyway. I sent an e-mail to the Office of the Chief Accountant at the SEC about this, so hopefully I will get a response.

  • Hi Lisa and welcome to the forums 🙂 … I found the following links related to 306. There doesn’t appear to be exceptions, although SEC section 306 is highly technical/legal in nature. Hopefully, you’ll hear from the SEC and I mainly wanted to share the more detailed information in case you need it.
    Please add www and paste to your browser
    Restriction of Insider Trading During Pension Fund Blackout Periods
    Background: Section 306(a) of the Sarbanes-Oxley Act of 2002 prohibits any director or executive officer of an issuer from, directly or indirectly, purchasing, selling or otherwise acquiring or transferring any equity security of the issuer during a pension plan blackout period that prevents plan participants and beneficiaries from engaging in transactions involving issuer equity securities held in their plan accounts, if the director or executive officer acquires the equity security in connection with his or her service or employment as a director or executive officer. Section 306(a) also requires an issuer to notify its directors and executive officers, as well as the Commission, of an impending blackout period on a timely basis. The statute takes effect on Jan. 26, 2003, 180 days after the date of enactment of the Sarbanes-Oxley Act. Section 306(a) further directs the Commission, in consultation with the Secretary of Labor, to issue rules that clarify the application of the statutory trading prohibition and that prevent evasion of the prohibition.

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